Israel VC Indicator Q4 08
The global crisis is well reflected in the expectations of venture capitalists for 2009DOWNLOAD
According to the majority of venture capitalists surveyed (87%), the government should support the high tech industry; Most respondents (74%) believe we will see fire sales during 2009; Ninety two percent of respondents believe that high tech companies that do not fire employees are likely to slash salaries and 67% believe there will be at least 3,000 layoffs.
Tel Aviv, December 29, 2008 - Almost unanimously, respondents believe that venture backed companies will be shutdown during 2009. Seventy four percent of them forecast that at least 10% of venture backed companies will be shutdown. Only 5% believe that the significant majority of venture backed companies (more than 95%) will endure 2009 and will withstand the crisis.
In light of the crisis, the majority of venture capitalists surveyed (87%) believe the government should support the high tech industry. Seventy two percent of venture capitalists surveyed believe that the government should provide a wide range of R&D grants. Regarding direct support of technology companies facing difficulties, out of all respondents to the survey only 33% believe that the government should intervene. Others suggest innovative ideas such as providing loan guarantees and credit lines, increase domestic infrastructure investment in communications, transportation and environmental technology and re-activate the export incentives fund.
"Due to direct ramifications on local tech companies, the immediate conclusion is the need for providing governmental support. The decision whether or not to support the industry will be influenced by the upcoming general election." explains Asher Mechlovich, Israel High Tech Leader at Deloitte Brightman Almagor Zohar.
In regards to revenues, forecasts of the venture capitalists are forlorn. Revenue growth is out of the question, with not even a single respondent who believes that we will see an increase. Forty four percent believe we will see a major decrease in the revenues and 46% believe we will see a slight decrease. Furthermore, 21% of the respondents believe there will be more than 5,000 layoffs, 46% believe there will be between 3,000 - 5,000 layoffs. Twenty six percent 1,000 - 3,000 layoffs, 3% less than 1,000 layoffs and 5% believe there won't be major layoffs. In line with the Q3 2008 survey, the majority of respondents (92%) believe that high tech companies that do not fire employees are likely to slash salaries (compared to 70% in Q3, 2008).
"Tech companies are headed for rough times. The revenues forecasts for the next year are all for decrease, albeit at varying levels, with no increases in the foreseeable future. Shareholders are going to keep 'hands on' intervention with regards to reducing salaries, cutting expenses and layoffs. Credit lines and equity funding opportunities are becoming very limited. All of the above will make the survivors of the year 2009 an excellent investment opportunity, as long as you know who is going to make it to 2010." explains Mr. Mechlovich.
The ongoing crisis is pushing venture capitalists to adapt their portfolio to the new reality and reconsider their exit strategies. Most respondents (74%) believe we will see fire sales during 2009.
The NASDAQ IPO market outlook is still gloomy. According to 92% of respondents the markets will not re-open prior to the year 2010. Furthermore, 16% of them believe that it will re-open only in 2011. In contrast to the gloomy outlook for the IPO market, the outlook for M&A transactions is much brighter. 41% of respondents think that M&A transactions will ramp up during 2009 and 36% think it will ramp up in early 2010. Furthermore, the vast majority of respondents see a decrease in exit valuations as a given. 79% of respondents expect exit valuations to decrease (compared to 17% in Q4 2007 and 6% in Q1 2007). This tendency is understandable in light of the poor outlook for the IPO market and M&A transactions.
"Venture capitals should refresh their strategies for the coming year. They will push the envelope of their portfolio companies by cutting expenses and focusing on core business" adds Mr. Mechlovich.
Reviewing the expectations of the number of transactions by sectors conclude that the main effected sectors are the 'Wireless & Telecom' and 'Semiconductors' with 81% and 78% of respondents, respectively, expect a decrease in the number of transactions in those sectors. The most stable and attractive sectors today are the 'Cleantech' and 'Medical Devices' with only 41% and 47% of respondents expecting a decrease, respectively.
Despite a slight softening in expectations for the economic climate worsening, the general outlook is still pessimistic. Sixty eight percent of respondents believe that the overall economic climate will worsen over the next six months (compared to 81% in Q3 2008). At the same time, 15% believe that it will remain the same and a small minority of 7% believes that the economic climate will improve over the next six months (compared to 4% in Q3 2008).
The trend of a slowdown in venture capital seed investments remains quite high, as in previous quarters. Fifty four percent of respondents believe we will see a slowdown and 25% believe that supply will almost be halved.
Access the complete results of Q4, 2008 Israel VC Indicator Survey at:
The purpose of the Israel VC Indicator Survey is to identify trends within the venture capital arena. Its objective is to give a comprehensive picture of the expectations of the Israeli VC community for the next six to twelve months. The survey is designed to explore relevant key aspects, such as economic and market conditions, deal activity and investment and managerial focus. The results produce a forward-looking measure of the overall sentiment in the Israeli venture capital community, which is extremely relevant to immediate deal flow.
The 27th Deloitte Brightman Almagor Zohar Israel VC Indicator Survey results for Quarter 4, 2008 include a comparison, where relevant, to responses from previous surveys.
The VC Survey and Private Equity Surveys are a Deloitte initiative. The surveys have been conducted for some years, running concurrently in Israel, the United Kingdom, Germany, Spain, Portugal, Central Europe, Mexico, South Africa and India, to name but a few. Moreover, once a year, Deloitte also releases a Global VC Survey. The Global Survey purpose is to identify attitudes of venture capitalists and private equity investors regarding investing on a global basis and tracking long-term trends about the attitudes of international investing.
Responses for Israel VC Indicator Survey Quarter 4, 2008 were collected from December 14th, 2008 through to December 24th, 2008. The responses were collected from venture capitalists in Israel, including replies from the major VCs in the country.
Deloitte TMT Business Development Team uses a variety of research and statistical tools to provide extensive analysis of the survey results. If respondents do not answer a question, the count for the question is adjusted accordingly. All charts presented in this report are sourced from the survey results.